IOWA CITY – Coralville City Administrator Kelly Hayworth faced questions in court Wednesday on whether the city circumvented the public, the business community and possibly even state law in its handling of the Iowa River Landing development.

A group of business owners and developers have sued the city and its development partner, Oliver McMillan, to block the proposed sale of land in Iowa River Landing to the Von Maur department store chain.

They argue Coralville violated state economic development grant laws and urban renewal laws by essentially giving Von Maur 7.46 acres of land, a 70,000-square-foot building, and other incentives that have been estimated to be worth more than $16 million.

Von Maur is to be the anchor tenant in the city’s 180-acre Iowa River Landing development, located south of Interstate 80 and off First Avenue.

Judge Marsha Bergan heard six hours of testimony Tuesday and Wednesday in Johnson County District Court and could issue a ruling as early as Monday on the plaintiffs request for an injunction. Click here for a story from Tuesday’s portion of the hearing.

The sale, expected to occur around April 1, would involve the city giving San Diego-based Oliver McMillan a $1.5 million economic development grant. The firm would then sell the land to Von Maur for $10.

State law prohibits a city from selling land below fair market value. Robert Hatala, an attorney for the plaintiffs, asked Hayworth if the city is using Oliver McMillan to avoid the appearance that the city is making a direct transfer of land to Von Maur and asked if the grant would even be given to the firm.

Hayworth said he believed the firm would get the money and said the city will have a line item in its budget for the $1.5 million. But he acknowledged under questioning that this year’s budget and next year’s, which was certified last week, do not contain that line item.

Hayworth also said the city has been working with Oliver McMillan since 2008. In the summer of 2010 the city sought proposals from developers interested in working on the project.

Hatala said the process was “illusionary” because Oliver McMillan had at least a year-and-a-half head start and other interested parties were given 35 days to respond, which is the minimum allowed in state law.

Oliver McMillian was eventually awarded the contract to be master developer for the contract, and Hayworth testified that no other firms expressed interest.

“How in the world would you know?” Hatala said, referencing the 35-day window.

Hayworth said the process was fair and followed the law.

Hatala also said the city had not been open with the public on the $1.5 million grant and other parts of the Von Maur agreement, with a public hearing not being held on those when they were approved in September 2011.

Hayworth said public notice was given, the information was available on the city’s website and people are allowed to speak at any City Council meeting.

Earlier in the court hearing, developer Gerry Ambrose, one of the plaintiffs, testified that he and other developers and landlords would be hurt by the city’s ownership of office and retail space in Iowa River Landing because they cannot compete with the incentives the city is offering.

“If we can’t stop it now, this train is going to be rolling down the track and it will not stop,” he said.

Ambrose also said he believed the city was too eager to develop the property and is now stuck in a bad deal.

Hayworth, in an interview, said city officials believe Iowa River Landing will be good for the area and getting a solid anchor tenant in Von Maur is crucial to its success. He said the lawsuit has hurt interest among potential tenants and the injunction, if granted, could “put the project at risk.”

Coralville has already paid Von Maur more than $700,000 and has spent money on some of the infrastructure improvements and engineering and architectural costs, he said.

The other witness Wednesday was Peter Fisher, research director of the nonpartisan Iowa Policy Project think tank and a critic of the Von Maur deal.

He testified how last fall, at The Gazette’s request, he estimated the incentives Von Maur would receive under the deal with Coralville at $16 million. He has since added another $1.7 million to that.

Fisher said the project was not worth the money because Von Maur is relocating its Iowa City store to Coralville, so there’s no significant increase in jobs or the community’s economic base or purchasing power.

David Tank, a Des Moines attorney representing the city, said Fisher’s analysis was incomplete because Fisher did not try to put a numeric value on the economic benefits the project would have on the area.

He also got Fisher to agree that anchor tenants typically get better deals, like paying less for land or rent, because they attract business to a retail center.

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